The End of the Dollar Mint Tax and the Arrival of a New Era for Stablecoins

With the turmoil in global financial markets, the fiat currency system is facing unprecedented challenges. The 2008 financial crisis gave rise to Bitcoin, and the difficulties of the fiat currency system in 2025 will drive the development of on-chain stablecoins, especially interest-bearing stablecoins that are non-USD and non-full reserve (YBS).

Although non-fully collateralized stablecoins are still in the theoretical stage and the impact of the 2022 Luna-UST crash lingers, some collateralized stablecoins are bound to become mainstream in the market driven by capital efficiency. Non-USD stablecoins are still in exploration, and the global currency status of the USD is still widely recognized. The RMB will not proactively internationalize on a large scale due to considerations of maintaining industrial capacity and employment; replacing the USD will be a long process.

This article will focus on the latest developments in stablecoins, particularly the overall landscape of YBS. The dollar-based, fully reserved on-chain stablecoin system contains the fundamental characteristics of post-dollar and non-fully reserved stablecoins.

The impact of the US policy shift on dollar hegemony

The issuance of the US dollar is technically a mutual negotiation between the Federal Reserve and the Treasury Department, amplifying the money multiplier through the credit relationships of commercial banks. In this model, US Treasuries maintain the slow inflation of the dollar and short-term currency stability, with US Treasury yields becoming the basis for global financial pricing. The cost of the dollar becoming the world currency is the US's external deficit and the dependence of various countries on the dollar.

Countries must acquire dollars to reduce transaction costs, but the purchasing power of the dollar has been depreciating over the long term. The dollars obtained must be quickly used for production or financial arbitrage to maintain competitiveness in exports to the U.S. However, this cycle is being disrupted by the new tariff system. Countries are beginning to flee the U.S. debt market, and the dollar/U.S. debt has become a risk asset.

The slow inflation of the US dollar is essentially a tax on the currency imposed on various countries, and it can only reduce the harm to the dollar itself when countries must hold and partially invest in US Treasuries. However, this balance is being disrupted.

The fragmentation of the global trade and financial system has instead become a catalyst for the "globalization" of cryptocurrency. In the near future, the turbulence of the global economic system will sustain competition among stablecoins. The increasingly differentiated world requires a universal language and cross-chain bridges, and the era of global arbitrage will inevitably emerge in the form of on-chain stablecoins.

stablecoin drives the development of the crypto market

The market capitalization of cryptocurrencies may have some discrepancies, but the issuance of stablecoins is relatively more authentic. The $2.7 trillion market cap of cryptocurrencies is merely a perception of the market "capacity," while the $230 billion in stablecoins at least has real reserves backing it, despite the controversies surrounding USDT reserves.

With certain stablecoins moving towards USDC, fully or over-collateralized stablecoins based on on-chain assets have effectively disappeared. The other side of real reserves is a significant reduction in capital efficiency or the money multiplier, where 1 dollar issues 1 dollar of stablecoin, buying government bonds off-chain, and lending on-chain, with a maximum of 4 times the re-issuance.

In contrast, the value of BTC and ETH seems to come out of nowhere. From a monetary perspective, the M0 of cryptocurrencies should be BTC + ETH, M1 plus stablecoin, while the reissuance volume of YBS based on staking and lending relationships, along with the DeFi ecosystem, constitutes M2 or M3. This perspective better reflects the actual state of the crypto market than market capitalization and TVL.

The crypto market is showing an "inverted" state, with highly volatile cryptocurrencies lacking corresponding sufficient stablecoins. Under this structure, YBS has practical significance because it can mint the volatility of cryptocurrencies into stablecoins. However, this is only a theoretical possibility and has never been realized in reality, with even 230 billion stablecoins needing to provide liquidity and trading channels for a 27 trillion market.

The essence and challenges of YBS

The yield of YBS is essentially the liability of the protocol, which is fundamentally a customer acquisition cost. It requires more users to recognize it as a standard equivalent to the US dollar and to hold it themselves rather than putting it into the staking system in order to sustain itself.

Currently, the YBS yields on Ethereum mainly come from Ethena and Pendle. Compared to the astronomical returns of thousands of times during the DeFi Summer, the current yields have significantly decreased. This marks the end of the era of high profits and the arrival of the low-interest investment era.

However, the underlying returns of many YBS projects rely on U.S. Treasury bonds, which is not safe. Secondly, on-chain returns require strong secondary liquidity support; without enough user participation, the return guarantee may become the last straw that breaks the YBS project.

As more and more YBS emerge, the focus of competition remains on market share. YBS can only squeeze the usage space of traditional stablecoins while maintaining a high yield when the majority of people use stablecoins for trading and payments, rather than pursuing returns. Otherwise, if all users pursue returns, the source of income will disappear. Whether it's rate arbitrage or U.S. Treasuries on-chain, there needs to be a counterparty that incurs a loss of yield or principal.

In the future, the development of YBS will face many challenges and opportunities. It needs to find a balance between yield, stability, and practicality, while also responding to regulatory pressures and market competition. With the continuous evolution of crypto finance, YBS may play an important role in reshaping the DeFi ecosystem and driving on-chain financial innovation.